Gold futures add to record highs on rate cut hopes, central bank demand

Gold futures continue to set records on Tuesday on growing optimism over U.S. interest rate cuts and as central banks continue to build reserves.

Most-active December Comex gold (XAUUSD:CUR) recently traded +0.4% to $2,551.20/oz, after reaching as high as $2,570.40 earlier in the session.

ETFs: (GLD), (NYSEARCA:GDX), (GDXJ), (IAU), (NUGT), (PHYS), (GLDM), (AAAU), (SGOL), (BAR), (OUNZ)

The dollar index sank to a seven-month low against rival currencies, making gold more attractive for other currency holders, while the benchmark 10-year Treasury yield fell 3.4 bps from Monday.

With the possibility of rate cuts and increased quantitative easing, financial markets have driven up the price of safe-haven assets such as gold, while the prospect of a weaker U.S. dollar has made the metal even more attractive to both domestic and international investors, XS.com analyst Antonio Ernesto Di Giacomo said, according to Dow Jones.

Investors are now awaiting the upcoming Jackson Hole Economic Policy Symposium for further Fed guidance, with Fed Chair Jerome Powell’s Friday speech to be scrutinized for further clues on the scale and timing of rate cuts, which “will provide insight into whether we can expect a rate cut, which will inevitably have an impact on the market,” the World Gold Council’s John Reade said, as reported by Dow Jones.

Investors have been moving into gold miners, with the Van Eck Gold Miners ETF (GDX) rising 26% YTD, outpacing the 18% gain for the S&P 500, betting that higher gold prices will result in rising cash flows, which in turn will translate to shareholder returns in the form of bigger dividends and share buybacks.

Scotiabank analyst Tanya Jakusconek said she sees an average 20% upside for gold miners, listing Agnico Eagle Mines (AEM), Kinross Gold (KGC), Barrick Gold (GOLD) and Newmont (NEM) among her top picks.

But investors have been burned before, Citi analyst Alexander Hacking cautioned, noting “if you look over the last three, five, 10, 15 years, you’ve been better off owning gold, not gold miners,” since miners in previous cycles have spent their cash flows rather than returned it to shareholders.